IIARD International Institute of Academic Research and Development

IIARD INTERNATIONAL JOURNAL OF BANKING AND FINANCE RESEARCH (IJBFR )

E-ISSN 2695-1886
P-ISSN 2672-4979
VOL. 2 NO. 2 2016

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Analysis of External Debt Dynamics and Capital Accumulation in Nigeria; a Co-Integration Approach

Adamgbo, Suka Lenu Charles, Igbasra N. Felix

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Abstract

When greater percentages of foreign reserves (Gross Capital Accumulation) are consumed in meeting external debt servicing, credit worthiness is eroded, causing reduction in access to external financial resources which impede economic growth rate. This study, examines the effects of external debt dynamics proxy by external debt stock (DS) and servicing (XDS) on the Nigeria external reserves (EXR) as a proxy for capital accumulation. The study spanned between 1981 to 2010 using the Nigeria time series data. The study used the correlation regression model to estimates the OLS, unit root, co-integration and ECM estimation techniques to explore the influence of the explanatory variables on the dependent variable. The result indicates presence of a negative relationship among our studied variables. Debts stock (DS) and servicing were found to account for significant changes in the Nigeria external reserves position up to 92% and was significant at 5% level. Applying the ADF test the variables were also found to be stationary at first difference. The Johansen test using both the trace and maximum Elgin statistics shows a stable long-run equilibrium relationship among the variable. The ECM coefficient confirms that EXR adjust fairly to the influence of (DS and XDS). Hence, there is therefore, need for government to curtail contracting foreign debt, the need for efficient management of external reserves to avoid looming risk of running out of capital stock

keywords:

External Debt Stock, External Debt Servicing, Capital Accumulation/Stock.

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